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The Different Types of Mortgages Explained

Not all mortgages are the same. Here is an article dealing with various types of mortgage loans.

Let me ask you a question: When you think of mortgage, what are the first ideas that come to your mind? If you ask two people that question, you could quite happily end up with two different answers, simply because there are actually a good number of types of mortgage loans out there. So what one person describes as “their mortgage” can be totally different from someone else’s description.Is there a definite way in which the various mortgage loans can be put under separate headings? The important word, really, is “loan”. A lot of people just casually drop the word in everyday use, but that’s effectively what it is. The “mortgage” part means, for the context we’re looking at, that the money they loan to you has a pretty large catch attached to it: if you don’t pay up, they get your house. It’s a pretty sweeping statement, but with the mortgage variety, you stand to lose a lot more as you have to secure it against something.So, do you want to avail of a mortgage loan? Sitting around won’t help.

You are going to have to do some looking around. The sorts available vary from legal system to legal system (so basically country to country), but in the long run they all boil down to you having to pay back the amount you borrowed over a long period of time with some interest.If you are afraid of changing interest rates, a fixed rate mortgage is ideal for you. This means that you don’t have to worry about the interest changing from month to month. So you won’t suddenly find yourself unable to afford the repayments. Alternatively you could try an “adjustable rate” mortgage (which has the interest rate change over time). Some mortgages allow you to combine both rates. The actual rate itself can vary, but that’s generally just based on what creditor you go with (which in turn can be affected by your credit history).

One aspect that can definitely change between mortgage types is how and when you’re expected to repay it. The “capital”, or amount you were initially given, clearly has to be paid back to the creditor at some point, but some types of mortgage loan such as “lifetime mortgages” (sometimes called “equity release”) don’t have to be paid back until you die. What happens here is that your house is as good as sold to the lender. However, you continue to live there till you die. Then the creditor acquires it completely.There’s often an age limit so only retired home owners can take out the loan. And it’s unlikely that you’ll end up with the same value of loan as you would if you actually did sell your house. But it does have the added benefit of giving retired home owners the chance to live in their own home in relative comfort for the rest of their lives.So: interest rates and variability, how and when it has to be repaid (not to mention the legal aspects of the whole loan) are all ways in which mortgages can vary. Try explaining your mortgage to someone. If you think that all mortgages are the same, you are in for an awakening. Explaining mortgages to someone is a tough job.

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